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Risk And Structural Change In Agriculture: How Income Shocks Influence Farm Size

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  • Roberts, Michael J.
  • Key, Nigel D.

Abstract

Farm-level Census data and county-level income shock data reveal that past unexpected income shocks affect the rate of change in average farm size. Average farm size increases more quickly in counties experiencing negative income shocks as compared to counties experiencing positive income shocks. This result cannot be explained by perfect-market models, which predict farm size should adjust according to changes in the relative prices of labor and capital. We posit a model wherein cash flows affect liquidity, which in turn affects farm borrowing and capital costs. In the model, farms that do not face liquidity constraints benefit from negative income shocks because they reduce land values, so these farms expand while liquidity-constrained farms contract. Observed farm consolidation patterns and farm exit rates are consistent with a model wherein liquidity constraints affect small farms more than large farms.

Suggested Citation

  • Roberts, Michael J. & Key, Nigel D., 2002. "Risk And Structural Change In Agriculture: How Income Shocks Influence Farm Size," 2002 Annual meeting, July 28-31, Long Beach, CA 19661, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea02:19661
    DOI: 10.22004/ag.econ.19661
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    References listed on IDEAS

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    Cited by:

    1. Margarian, A., 2011. "Gewinnentwicklung und Betriebsaufgabe in der Landwirtschaft: Angebotseffekte, Nachfrageeffekte und regionale Heterogenität," Proceedings “Schriften der Gesellschaft für Wirtschafts- und Sozialwissenschaften des Landbaues e.V.”, German Association of Agricultural Economists (GEWISOLA), vol. 46, March.
    2. Margarian, Anne, 2010. "Nachbarschafts- Und Konjunktureffekte: Zur Aufgabewahrscheinlichkeit Landwirtschaftlicher Betriebe," 50th Annual Conference, Braunschweig, Germany, September 29-October 1, 2010 93961, German Association of Agricultural Economists (GEWISOLA).
    3. Key, Nigel D. & Roberts, Michael J., 2003. "Government Payments And Structural Change In Agriculture," 2003 Annual meeting, July 27-30, Montreal, Canada 22106, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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